Hulu, Netflix And The Slow Rise of Internet TV

Earlier this month, Hulu CEO Jason Kilar announced that Viacom content from channels like Comedy Central and MTV were returning to Hulu’s library. But that wasn’t all he said. In a meandering manifesto, Kilar announced Hulu’s intentions of surpassing and eclipsing cable TV for the benefit of viewers, content creators and advertisers alike, implying that the current system was outdated and unmaintainable.

Speculation on why Kilar would make such statements on the Hulu blog and tempt the wrath of his bosses/partners at Disney, NBC Universal and Fox is rampant, but the most likely culprit is Viacom’s half-hearted re-entry into Hulu’s library. Popular shows like The Colbert Report will be delayed three weeks after airing, instead of the customary 24 hours that most shows use.

The move isn’t a surprising one from Viacom, whose forays into digital video have been reluctant at best (they recently lost a high-profile lawsuit against Google over alleged copyright infringement in YouTube’s infancy). The nickel-and-diming tactics of Viacom were probably the straw that broke Kilar’s back, and he vented his frustrations to the world with little thought for his own continuing position.

It’s not hard to see why the CEO is frustrated – tech-savvy viewers have shared such frustrations for years. The biggest deterrent to Hulu’s new subscription service is a lack of premium content. Networks and rights-holders have been slow to add movies and television shows to the libraries of both Hulu and streaming rival Netflix, holding out for the sake of DVD sales and syndication dollars. Worse yet, the availability of content seems to be in constant flux. While both services are regularly adding video, movie collections and shows disappear from the digital libraries with depressing regularity.

Viacom originally pulled out of Hulu in early 2010, leaving millions of viewers without online access to their daily dose of Stewart and Colbert. Just last week it was announced that the The Criterion Collection of critically-acclaimed films would come to Hulu’s Plus service – and disappear from Netflix’s streaming library. Premium cable content from HBO and Showtime is rare on Netflix’s streaming site and non-existent on Hulu Plus.

Sports fans seem to have even less options than normal TV viewers when it comes to internet distribution. The vast majority of sporting events, especially college games, are only available through expensive satellite and cable packages. There is headway on this front, though: Major League Baseball allows fans to view all its games online (for a whopping $100 a year), and rumors persist of a similar deal for NFL fans. For Xbox 360 owners, ESPN 3 has been available for some time.

Then there’s the problem of access. Both Hulu and Netflix are bound by licensing to block access to foreign countries. Netflix has begun adding subscribers in Canada, but due to licensing restrictions, the digital library loses some shows and movies and gains others once you cross the border. Both services have made laudable efforts to be available on new internet-connected set-top boxes like Apple TV, Roku, and newer Tivo models, but not without strenuous negotiations and delays.

At the insistence of its partners, Hulu has blocked access to Google TV, rendering the ambitious service moot for many viewers. If you want Hulu or Netflix streaming on the go, you’re in luck – so long as you use an Apple iDevice. Restrictive anti-piracy efforts have kept both services off of the popular Android and Blackberry platforms for now, and it looks to be several months before any significant progress will be made.

Access to content isn’t the only problem for consumers. 40% of United States residents have no access to broadband internet, making online video services practically unusable. In rural areas, wireless internet from cell phone service providers is often the only solution, bringing with it data and bandwidth caps that make video streaming an expensive proposition. (Yours truly falls into this category – thanks, Verizon.)

Even urban broadband, which has historically been unlimited, is beginning to be metered by providers. Comcast users currently have a generous cap, but Bell Canada customers (and customers of regional service providers using Bell’s infrastructure) were recently limited to 25 gigabytes a month. The restriction will be re-assessed by Canadian regulators in the coming months. Corporate consolidation, like Comcast’s recently completed purchase of NBC, leaves many US regulators and customers keeping a watchful eye out for conflicts of interest.

An online video landscape that seemed to have unlimited potential just two years ago now seems mired in pitfalls and speed bumps. The frustrations of Hulu’s CEO echo those of consumers weary of expensive cable contracts and commercial-saturated television. Licensing issues are the hardest to overcome, and the ball rests squarely in the court of the intellectual property owners. It looks as though content holders and infrastructure providers are successfully holding back the tide of innovation – for now.

Determined cable-cutters are using subscriptions to Netflix or Hulu (or both) to bid farewell to the antiquated premium TV models. What can’t be found on either service can often be purchased or rented from iTunes or Amazon Video. There’s been a massive increase in illegal streaming sites, augmenting torrent and usenet networks that have successfully operated in the depths of the internet for years. While it seems that a true, legal online alternative to a traditional cable subscription is still months or years away, progress is slowly being made to bring television into the 21st century.

Jason Kilar’s days at Hulu might be numbered. His unmistakeably intentional rant hasn’t sat well with industry regulars, meaning that big partnerships with Hulu will be a tough sell with someone so forward-looking at the helm. Disney, Fox and NBC-Comcast will likely leverage their stakes in the small company, continuing to stall the transition to a full IPTV system. But Kilar’s an experienced and driven executive – if he leaves Hulu, expect him to continue to lead the march for ubiquitous digital distribution. Other parties are more than happy to step up when old media fails – game streaming pioneer OnLive is taking steps towards becoming a third major competitor for online streams, to say nothing of completely internet-based startups like Revision 3.

Networks and service providers need to get on the bandwagon now to avoid losing revenue in the short term and relevance in the long term. The future is coming, and no, it won’t be televised.